INVESTMENT BASED ON FUNDAMENTAL ANALYSIS

I advise people to invest based on fundamentals of a company.
i) Look at the type of product which they are producing and selling. What is their core-competence. Core-competence is the core business which the company has embarked upon. The company might have some "other income" during a brief period but for a perfect analysis you have to see how much income accrues from the core-competence. (For eg. in Noida Toll : the core-competence is collection of toll from the Expressway. If they make some profits from other sources, your study could go awry).

ii) Look at the industry on a whole. How many players are there? what is the type of competition the company is facing or will face. If it is a near monopoly and the demand for the products of the company is everlasting, you may safely invest and forget about it. If there is stiff competition from so many players, the performance may stagnate (For eg. Hindustan level facing competition from players like Nirma, Proctor & Gamble etc.)

iii) Look at the Promoters group or Management. Companies belonging to promoters like TATAs are safe. Nowadays companies belonging to Reliance Group are hot cakes.

iv) If a company is manufacturing items which are disposable or consumable, it is preferable to have those than those companies whose products are purchased once in a life time or once in a long time. (For eg. a company manufacturing Colour TV etc. may not go very high because a person who buys Colour TV may not think of buying another TV for next 8-10 years). This is one of the reasons why two wheeler segment now feels saturated.

v) If exports are the means of profit for the company, look at the industry as a whole and what sort of competition they are facing from companies from other countries. For eg. Carpet companies in India are facing stiff competition in European markets from cheaper varieties manufactured in Pakistan, Afghanistan, Iran etc.

vi) Look at the raw materials which the company would have to source from other companies. If the raw materials would have to be sourced from abroad, the supply should not be hindered by any rules or regulations prevailing in that country. (For eg. after the nuclear bomb explosion in Pokhran, America imposed sanction and over 200 companies suffered because of stoppage of essential raw materials and technical know how). It is, therefore, preferable to choose companies which source raw material or technical know indigenously.

vii) The demand for the product should be ever lasting. In this group I may categorise some corporate hospitals, which will never close. They may make losses initially, but with increasing health care awareness, this is one sector which will need a re-rating.